Purchasing a first home is an exciting time in anyone’s life. It’s also a large financial undertaking, a fact that leaves many people wondering whether they’re prepared for this big step. The New Jersey Society of Certified Public Accountants (NJSCPA) suggests you answer these questions to help you decide if the time is right for you:
What’s the Hurry?
Owning your own home is a tempting prospect, but make sure that you are not hurried into making a decision. Home sales have generally been slow for the past year, which makes it less likely a house you like will be bought overnight. Even when the market is hot, it’s best to look around in different neighborhoods and at various types of homes to see what you can afford and make sure you have all the information you need.
How Much Will It Really Cost Me?
You are probably aware that you will need a down payment, ideally at least 20 percent of the home’s purchase price, and you will then make monthly payments on a mortgage that covers the rest of the total purchase price. Those aren’t the only costs of home ownership. You will likely also have monthly payments for local property taxes, utilities and home owners’ insurance, as well as cover one-time upfront costs for moving and any furniture or appliances you need. Also consider the price of any renovations or repairs the house may need, and for general (ongoing) upkeep of the home and property.
How Do Taxes Come into It?
There are many potential tax deductions associated with home ownership that you should be aware of as you plan your purchase. For example, many people can deduct the interest they pay on their home mortgage. In the early years of a mortgage, that interest is the major portion of your monthly payment, so this potential deduction is significant. That’s because when you take deductions, they lower your taxable income and, as a result, you end up paying fewer taxes overall. In many cases, the points you pay on a mortgage loan may also be deductible. And, while real estate taxes are one of the hidden costs you should be aware of, they are also deductible. All of these deductions added together could mean a little more money in your pocket each month.
What About the First-Time Homebuyer Credit?
If you have purchased a home this year or plan to do so before December 1 2009, you may qualify for this tax credit. Using the credit for a home purchased in 2009, you are allowed to claim 10 percent of your purchase price, up to $8,000, or $4,000 for married people filing separately, as long as you meet certain income limits (slightly different rules apply for homes bought in 2008). Under revised rules, those who purchase in 2009 don’t have to repay the credit if they don’t sell their home within three years of purchase.
The credit can be used for the purchase of a principal residence in the United States if the buyer or his or her spouse has not owned a principal residence at any point during the three years before the title closing date. (The credit does not qualify for vacation homes or rental properties, however.) If you think you might qualify, you can find out more information about this credit in Internal Revenue Service Form 5405 or by speaking to your local CPA.
Your CPA Can Help
Your local CPA can help you determine how much house you can afford and what your monthly or one-time costs will be, as well as the tax effect of a home purchase. Turn to him or her with all your financial questions.
If you don’t have a CPA, you can easily locate one online using the NJSCPA’s free, online Find-A-CPA service. Just go to www.findacpa.org, and in a few clicks you can locate a highly qualified professional who can assist you.
For more information on various personal financial matters, visit the NJSCPA’s public service website at www.MoneyMattersNJ.com. While visiting, you can subscribe to Your Money Matters, the NJSCPA’s free, monthly email newsletter to receive valuable personal financial planning advice throughout the year.
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